A road sign stands next to the Bombay Stock Exchange building.
By Abhishek Vishnoi
MUMBAI (Reuters) - The BSE Sensex surged over 3 percent on Thursday with the benchmark index marking its highest close in nearly three years, led by banks, after the U.S. Federal Reserve surprised the markets by sticking to its stimulus plan.
The NSE bank index jumped 6.75 percent on hopes that after the Fed move the Reserve Bank of India would have greater flexibility if it wants to gradually roll back some of the cash tightening steps it initiated since mid-July.
RBI Governor Raghuram Rajan is widely expected to keep the policy rate and the cash reserve ratio unchanged in his monetary policy review on Friday, according to a Reuters poll. The poll, which was conducted before the Fed decision, also expects the July cash tightening steps to be retained.
Analysts add that the Fed decision may lead to a resurgence of much needed portfolio flows into emerging markets like India. Foreign institutional investors have already bought more than 75 billion rupees worth of Indian shares over the previous 10 sessions.
"RBI can withdraw fully or partially some of the extraordinary liquidity tightening it had done to support INR, including ceiling on LAF and steep hike in MSF," said Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services.
Speeding up financial sector reforms, too, would act as confidence and growth boosters, Oswal added.
The Sensex surged 3.4 percent, or 684.48 points, to end at 20,646.64, after earlier rising as much as 3.9 percent, marking its highest level since November 11, 2010.
The broader Nifty rose 3.7 percent, or 216.10 points, to end at 6,115.55, marking its highest close since May 2013.
Bank shares surged on hopes the Reserve Bank of India, in its policy review on Friday, would ease some of its emergency cash tightening steps.
Among private sector banks, ICICI Bank Ltd
Among banks dependent on wholesale deposits, Yes Bank Ltd
Among state-owned banks, State Bank of India Ltd rose 8 percent while Bank of Baroda Ltd
Shares in state-owned oil retailers also gained as a rally in the rupee against the dollar was seen easing concerns about higher cost of crude oil imports and dollar debt, dealers said.
Hindustan Petroleum Corp Ltd
GMR Infrastructure Ltd
Ranbaxy Laboratories Ltd
However, among decliners, Tech Mahindra Ltd
(Editing by Sunil Nair)